Carbon tax a sign of things to come for all firms

AT first glance, the carbon tax proposed in Singapore's Budget 2017 seems limited in its impact. Set to start from 2019, it will be applied to power stations and other large emitters, mainly refineries and petrochemical and semiconductor manufacturers which produce more than 25,000 tonnes of greenhouse gases in direct emissions.

Some companies tend to dismiss this as one affecting only the heavy industries. But the reality of the matter is that it has implications for all and sundry in areas such as carbon reporting and it therefore pays to take heed of the longer-term possibilities that the carbon price measure portends.

Of the companies listed on the Singapore Exchange (SGX), Sembcorp Industries and Keppel Infrastructure Trust - which own and operate cogeneration plants producing power and steam on Jurong Island - are the ones most affected by the carbon price.

Sembcorp, while conceding that the tax will be a financial burden, said the additional revenue from steam will allow it to recover even more of the extra cost compared to other power-generation companies which produce only power. The group has also newly entered into the rooftop solar business in Singapore, putting the firm in a more competitive position, its CEO Tang Kin Fei said during its results briefing.

Keppel Infrastructure Trust declined to comment.

Most other businesses, it appeared, would be largely unaffected, except through a potential increase in electricity prices.

But a look around the region shows that Singapore, while a forerunner in doing so in South-east Asia, is not alone in imposing a carbon price.

South Korea has launched an emissions trading scheme in 2015, and China is set to start its nationwide trading scheme by the second half of this year. The latter already has seven pilot schemes, seen as experiments testing out various parameters and designs for the nationwide scheme.

With little details released so far on the national scheme, many SGX-listed companies with a sizeable presence in the country are still taking a wait-and-see approach, The Business Times earlier reported.

In fact, among the 800-over companies on the SGX, few have factored in a carbon price in their business considerations.

According to a report released in September last year by London-based CDP, formerly known as the Carbon Disclosure Project, only six companies in Singapore plan to use an internal carbon price within the next two years; Olam International, City Developments Limited (CDL), Singtel and Elec & Eltek Co are the names it can publicly disclose.

The small number is not surprising, given that Singapore companies have also been slow to take up sustainability reporting, viewing it more as a cost burden than anything else.

It is also easy to dismiss a carbon price as affecting only companies in heavy industries.

But in what might be a sign of things to come, Shanghai - which operates one of China's seven pilot schemes - also includes airports, ports, hotels and financial companies if they emit more than 10,000 tonnes of carbon dioxide a year through direct and indirect emissions.

(Direct emissions refer to emissions that come from sources owned or controlled by the company, for instance, a diesel power plant. Indirect emissions are emissions that result from a company's activities, but are generated somewhere else, such as through electricity.)

At the same time, companies listed on the London Stock Exchange have since Oct 1, 2013, been required to state their annual greenhouse gas emissions in their annual reports.

As carbon pricing increasingly gains favour with countries around the world, it will not be surprising if such carbon reporting requirements were to become more prevalent, or if companies with smaller carbon footprint were to be included in gradually widening carbon pricing regimes.

With the SGX requiring sustainability reporting for financial years ending on Dec 31 this year and after, companies are already beginning to put in place systems to get ready for change.

This, then, might be a good time as any for SGX listed companies to also start measuring and reporting their carbon footprint. After all, Singapore's carbon tax will just be one of many steps in the global journey toward a low-carbon future.